[PODCAST] US Open Rundown 18th September 2020
- European bourses are flat/mixed in relatively quiet trade with focus on quad witching to close out the week
- US lawmakers are nearing a spending deal to avert a government shutdown at the end of the month, which a bipartisan group seeks to unveil today
- US President Trump is reportedly comfortable with the deal TikTok and Oracle (ORCL) made with the CFIUS
- Taiwan's Defence Ministry says multiple Chinese jets crossed the mid-line of the Taiwan Strait on Friday
- FX sees the dollar downbeat on JPY strength while NZD also outperforms; debt space is modestly firmer but not by a significant magnitude
- Looking ahead, highlights include Uni. of Michigan Sentiment, ECB's Schnabel, Fed's Bullard, Bostic and quadruple witching
Global confirmed COVID-19 cases surpassed 30mln, according to Johns Hopkins data. (Newswires)
Advisers to the UK government have proposed a 2-week national lockdown coinciding with October school half term to try to address the increasing COVID-19 infections, according to FT. In relevant news, stricter lockdown measures are expected to be imposed in Lancashire, UK. Subsequently, UK Health Minister Hancock says, on a national lockdown, that this would be the last line of defence but willing to do whatever is necessary. Specifically, for London, Surge of COVID-19 cases in London is to be confirmed in official figures today, putting the capital on track for curbs on socialising and nights out in ~two-weeks, Evening Standard's Cecil. (FT/Sky News/Newswires/Twitter)
Eli Lilly (LLY) Baricitinib in combination with remdesivir reportedly reduces time to recovery in hospitalised patients with COVID-19 in an NIAID-sponsored ACTT-2 trial and met the primary endpoint of reduction of time to recovery. In other news, Moderna (MRNA) executive said they have not seen any cases of transverse myelitis in its COVID-19 vaccine trial. (Newswires)
EU has agreed a purchase deal for the Sanofi (SAN FP)/GSK (GSK LN) COVID-19 vaccine. (Newswires)
Asian equity markets were mildly positive after shrugging off the weak lead from the US where the Nasdaq led the retreat once again to extend on the losses following the FOMC policy announcement and heading into quadruple witching. ASX 200 (-0.3%) and Nikkei 225 (+0.2%) were rangebound after failing to build upon opening momentum with strength in Australia’s commodity-related sectors offset by losses in the broader market including the top-weighted financials, while the Japanese benchmark treaded water amid a lack of fresh catalysts to instigate price action and with the latest inflation data all conforming to expectations. Hang Seng (+0.5%) and Shanghai Comp. (+2.1%) were initially indecisive with outperformance eventually seen in the mainland following the PBoC’s liquidity efforts in which it utilized both 7-day and 14-day reverse repos for the first time this month, although some cautiousness remains after recent mixed reports concerning the Oracle-TikTok deal heading into President Trump’s verdict which sources suggested could be within the next couple of days, while substantial pressure was also seen in Tencent shares due to recent underperformance in the tech sector and with its gaming stakes said to draw US national security scrutiny. Finally, 10yr JGBS were higher after recently breaking through the stubborn resistance at the 152.00 level, but with gains limited by the improving risk tone and following slightly weaker demand at the enhanced liquidity auction for 2yr-20yr JGBs.
PBoC injected CNY 110bln via 7-day reverse repos and CNY 60bln in 14-day reverse repos for a net daily injection of CNY 80bln and net weekly injection of CNY 260bln vs. Prev. CNY 230bln injection last week. (Newswires) PBoC set USD/CNY mid-point at 6.7591 vs. Exp. 6.7572 (Prev. 6.7675)
Sources told Fox that US President Trump is comfortable with the deal TikTok and Oracle (ORCL) made with the CFIUS and that the deal with CFIUS goes way beyond anything any other company has subjected itself to, making TikTok US the most secure platform in the US, according to FBN's Moynihan. (WSJ/Fox Business News) However, there were later reports that Secretary of State Pompeo was moving closer to backing the deal and that ByteDance was gaining confidence Beijing will approve the deal. (Newswires/Fox Business News)
US President Trump's ban on Tencent’s WeChat app may face a temporary halt by a US judge due to the order being vague. (Newswires/SCMP)
US Senate Democrats announced a USD 350bln plan to confront China, which aims to strengthen the US medical supply chain, support new technology such as 5G and oppose China’s ‘predatory economic behaviour. (SCMP)
Japanese National CPI (Aug) Y/Y 0.2% vs. Exp. 0.2% (Prev. 0.3%). (Newswires) Japanese National CPI Ex. Fresh Food (Aug) Y/Y -0.4% vs. Exp. -0.4% (Prev. 0.0%) Japanese National CPI Ex. Fresh Food & Energy (Aug) Y/Y -0.1% vs. Exp. -0.1% (Prev. 0.4%)
US Fed released 2 hypothetical scenarios for 2nd stress tests of large banks this year with the results to be published by year-end and the Fed will also announce by end of this month if it will continue prohibiting bank share repurchase & limiting dividends for Q4. The Fed stated that second stress tests are needed due to continued uncertainty amid the pandemic and it will test banks against 2 hypothetical recessions over the next 9 quarters with varying severity and also test banks with large trading businesses against an unexpected default of largest counterparty. (Newswires)
US President Trump confirmed the administration will provide additional USD 13bln of relief to farmers. (Newswires)
US lawmakers are nearing a spending deal to avert a government shutdown at the end of the month, which a bipartisan group seeks to unveil today. Furthermore, there were earlier reports that House Majority Leader Hoyer told lawmakers the House will take up new stopgap early next week to prevent government shutdown on September 30th. (Newswires)
ECB's de Cos says it cannot be ruled out that new stimulus will be required; Risks of withdrawing stimulus too early outweigh those of continuing; saw a recovery deceleration in August. (Newswires)
UK Retail Sales MM* (Aug) 0.8% vs. Exp. 0.7% (Prev. 3.6%, Rev. 3.7%)
- YY* (Aug) 2.8% vs. Exp. 3.0% (Prev. 1.4%)
Stocks in Europe see a mixed session thus far (Euro Stoxx 50 -0.1%), whilst US equity futures also see no conviction amid a somewhat of a similar lead from APAC, with fundamental news-flow light on quadruple witching day (full schedule available on the headline feed). The regional bourses see a mixed performance, with Switzerland’s SMI (+0.5%) outperforming as the Healthcare sector is propped up by Pharma-giants Roche (+2.1%) and Novartis (+1.8%), with the former announcing its phase III EMPACTA study met primary endpoints in regards to COVID-associated pneumonia, whilst also rolling out a new antibody test for countries accepting the CE mark. On the other side of the spectrum resides Spain’s IBEX (-1.5%), weighed on by the banking sector in the aftermath of the formal merger agreement between Caixabank (-1.5%) and Bankia (-4.3%); with Caixabank’s CEO stating it is out of question that the merger with Bankia will allow for potentially higher dividend. Meanwhile, Banks more broadly saw fleeting upside on reports that EU regulators have moved closer to lifting the ban on dividends in 2021, nonetheless the sector remains in the red. Overall, European sectors trade mixed with no risk profile to be derived. In terms of individual movers, Covestro (+6.9%) holds onto a bulk of its opening gains amid speculation that Apollo is said to be mulling a USD 10bln takeover bid for the group, albeit the Co. said it is not in any discussions. Sticking with M&A, LSE (+0.7%) has accepted Euronext’s (+4.8%) bid for Borsa Italiana, despite it being the lowest offer, but the deal did offer a sweetener as Euronext teamed up with Italy's sovereign wealth fund CDP and Intesa Sanpaolo (-0.1%) on its bid, with Rome keen to keep a tight grip on Borsa Italiana. Finally, Ryanair (-5.2%) is pressured after cutting its October capacity by a further 20% on top of the already announced 20% in mid-August with similar capacity cuts potentially in the pipeline for winter – also weighing on the likes of easyJet (-8.3%), IAG (-12.1%), Lufthansa (-4.7%) and Air France-KLM (-3.9%) in sympathy, with the airline sector already bearing the brunt of the European COVID-19 resurgence.
JD.com (JD) - JD Health, Co's healthcare arm, is looking to raise up to US$3 billion via an initial public offering in Hong Kong later this year, according to people familiar with the process; SCMP reports. (SCMP)
NZD/AUD –The rationale or catalyst is far from clear, but disappointment in wake of NZ Q2 GDP has been relatively short-lived for the Kiwi, and remarks from Finance Minister Robertson overnight noting that the economy is rebounding from contraction may have helped along with his assurance that the RBNZ is committed to maintaining the OCR at 0.25% until Q1 next year when it will reassess the situation. Confirmation of the latter could come from next week’s policy meeting in addition to any response to the latest review of pandemic containment measures in Auckland and the rest of the country. Nzd/Usd has extended its recovery to just shy of 0.6800 vs almost 0.6600 last Wednesday, while Aud/Nzd has retreated through 1.0800 as the Aussie stalls above 0.7300 against its US counterpart following somewhat contrasting comments from Treasurer Frydenberg downplaying Thursday’s stellar jobs data by describing the labour market as still very challenging. Note also, Aud/Usd may be feeling the gravitational pull of 2.4 bn option expiry interest at the 0.7300 strike.
JPY/DXY – Not the biggest index component, but the Yen continues to exert considerable influence on the broad Dollar and DXY as it probes a Fib retracement level ahead and 104.50 following this month’s respective Fed and BoJ policy meetings, even though Japan’s Finance Minister contends that monetary easing has helped Usd/Jpy to stabilise within a 105.00-110.00 range. However, the Buck is unwinding more of its fleeting FOMC gains vs G10s in general and July 31’s 104.20 trough looms as the DXY hovers below 93.000 and not far from last week’s 92.695 base between 92.772-973 parameters.
GBP/EUR – Modest m/m beats on the UK retail sales front may be propping up the Pound, but is appears that Cable’s latest look at 1.3000 and Eur/Gbp’s pull-back from yesterday’s highs are due to renewed hopes of a Brexit trade deal given European Commission President von der Leyen’s purported confidence that an accord can yet be forged. Indeed, the short end of the UK yield curve is still tipped in favour of sub-zero rates after guidance from the BoE, while the Euro is also on a firmer footing against the Greenback, albeit tethered to 1.1850 with decent option expiries capping the upside at 1.1900 and 1.1950, while the 100 HMA is in close proximity at 1.1844.
CAD/CHF – The Loonie has pared more lost ground vs its US rival to straddle 1.3150 before Canadian retail sales, while the Franc is idling just above 0.9100 and looking further forward to September’s quarterly SNB policy review for any tweaks to the language of currency’s valuation.
EM – The Rand has extended post-SARB upside towards 16.1000 vs the Dollar with some extra impetus from the SA Government pledging Zar 10.5 bn extra funds to state carrier SAA, but the Rouble is treading cautiously into the CBR amidst expectations for a 25 bp rate cut and the Lira has slipped to another all time low. Elsewhere, the NBH has launched its first Eur/Huf swap funding facility.
It’s been one of those typical slow grinds after a bull retracement, but relatively pronounced and perhaps telling given the lack of movement in stocks and overall risk sentiment amidst quad-witching and pre-weekend positioning. Bunds are back above 174.00 and are re-testing -50 bp cash yield levels at 174.34, while Gilts have clawed back all and a bit more of their losses to trade just over parity at 136.69 vs Thursday’s 136.61 close and the 10 year T-note is nearer the top of its 139-11+ to 139-17 overnight range. Ahead, no early US data, but Canadian retail sales fill the void before prelim Michigan sentiment and Fed’s Bullard picks up the baton from the FOMC at the same time when ECB’s Schnabel is also due to speak.
WTI and Brent front month futures have trimmed overnight gains to the point futures trade somewhat flat during early European hours, with little by way of fresh catalysts to induce the pullback. Prices yesterday saw support from the Saudi Energy Minister’s commentary, who noted that OPEC does not have to wait until December to react and will be pro-active, whilst warning oil speculators not to bet against the oil producers. Elsewhere, Tropical Depression 22 resides in the western Gulf of Mexico and is forecast to evolve to a Tropical Storm later today; although, current projections show the Depression to become a short-lived hurricane but will steer clear of major oil and gas infrastructures. WTI Nov retains a USD 41/bbl handle but resides closer to session in proximity to the psychological levels, whilst its Brent counterpart trades sub-43.50/bbl having printed a current range of USD 43.12-80/bbl. Elsewhere, precious metals eke mild gains amid the softer Buck, with spot gold meandering just north of the USD 1950/oz mark and spot silver holding onto the USD 27/oz handle. Meanwhile, LME copper hit an over-2yr peak due to the softer Dollar and optimism surrounding Chinese demand, whilst Dalian iron ore snapped a three-session loss streak as industrial data showed that the pace of portside inventory builds slowed.
NHC said tropical depression has formed in the southwestern Gulf of Mexico, which is expected to move slowly over the western Gulf into early next week. (Newswires)
Shell said output at Appomattox platform in Gulf of Mexico is ramping up and expected to return to normal tonight, while it added that non-essential personnel were being evacuated from Perdido in Gulf of Mexico as a precaution to Tropical Depression 22. (Newswires)
IEA Executive says global energy demand in 2020 is expected to fall by 6% due to COVID-19. (Newswires)
Taiwan's Defence Ministry says multiple Chinese jets crossed the mid-line of the Taiwan Strait on Friday; Taiwan scrambled fighters and deployed air defence missiles to monitor the Chinese aircraft. Prior to this, China announced the PLA are to conduct military exercises near Taiwan Strait which is in response to situation in the Taiwan Strait, while it added that it is a dead end for Taiwan’s Democratic Progressive Party to collude with the US. There were also reports that Taiwan investigators shared information with the US concerning Chinese hackers. (Newswires)
WSJ's reporter Norman notes "sounds like little chance the Turkey-Belarus sanctions will be resolved until EU leaders meet late next week". (Twitter)